Here's Why Samsung Electro-Mechanics (KRX:009150) Can Manage Its Debt Responsibly

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, Samsung Electro-Mechanics Co., Ltd. (KRX:009150) does carry debt. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Samsung Electro-Mechanics's Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 Samsung Electro-Mechanics had ₩1.99t of debt, an increase on ₩1.83t, over one year. However, its balance sheet shows it holds ₩2.56t in cash, so it actually has ₩565.3b net cash.

A Look At Samsung Electro-Mechanics' Liabilities

Zooming in on the latest balance sheet data, we can see that Samsung Electro-Mechanics had liabilities of ₩3.56t due within 12 months and liabilities of ₩685.9b due beyond that. Offsetting this, it had ₩2.56t in cash and ₩1.63t in receivables that were due within 12 months. So these liquid assets roughly match the total liabilities.

Having regard to Samsung Electro-Mechanics' size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the ₩10t company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, Samsung Electro-Mechanics also has more cash than debt, so we're pretty confident it can manage its debt safely.

View our latest analysis for Samsung Electro-Mechanics

The good news is that Samsung Electro-Mechanics has increased its EBIT by 6.8% over twelve months, which should ease any concerns about debt repayment. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Samsung Electro-Mechanics can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Samsung Electro-Mechanics may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. In the last three years, Samsung Electro-Mechanics's free cash flow amounted to 40% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

We could understand if investors are concerned about Samsung Electro-Mechanics's liabilities, but we can be reassured by the fact it has has net cash of ₩565.3b. On top of that, it increased its EBIT by 6.8% in the last twelve months. So we are not troubled with Samsung Electro-Mechanics's debt use. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 1 warning sign for Samsung Electro-Mechanics you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.